Mergers and shareholder wealth in European banking

We study the stock market valuation of mergers and acquisitions in the Euro pean banking industry. Based on a sample of very large deals observed from 1988 to 1997 we document that, on average, at the announcement time the siz e-adjusted combined performance of both the bidder and the target is statis tically significant and economically relevant. Although our sample shows a great deal of cross-sectional variation, the general results are mainly dri ven by the significant positive abnormal returns associated with the announ cement of domestic bank to bank deals and by product diversification of ban ks into insurance. On the contrary, we found that M&A with securities firms and concluded with foreign institutions did not gain a positive market's e xpectation. Our results are remarkably different from those reported for US bank merger s. We explain our different results as stemming from the different structur e and regulation of EU banking markets, which are shown to be more similar between them than as compared with the US one. (C) 2000 Elsevier Science B. V. All rights reserved. JEL classification: G21; G34.